LONDON, Dec 19 (Reuters) - AstraZeneca has agreed to
buy Bristol-Myers Squibb's stake in the companies'
diabetes joint venture for up to $4.1 billion in a deal that
will help return the group to growth, sending its shares to a
new high.

AstraZeneca said on Thursday that it would pay Bristol an
initial $2.7 billion plus up to $1.4 billion in additional
regulatory and sales-related payments.

The move will bulk up AstraZeneca's thin drug portfolio and
give Bristol more funds to invest in other areas, such as
cancer, where it is developing promising therapies tapping into
the immune system.

Following the announcement shares in AstraZeneca hit an
11-year high in early morning trading before paring earlier
gains to trade up 1 percent at 3,595 pence by 0935 GMT.

Speculation that AstraZeneca might look to buy out Bristol
was fuelled last month when the U.S.-based company decided to
get out of diabetes research.

The decision to quit research and now sell out of the joint
venture marks a strategic reversal by Bristol, which only last
year bought diabetes specialist Amylin Pharmaceuticals for $5.3
billion and folded its products into the alliance with
AstraZeneca.

"Today's announcement reinforces AstraZeneca's long-term
commitment to diabetes, a core strategic area for us and an
important platform for returning AstraZeneca to growth," Chief
Executive Pascal Soriot said in a statement.

Soriot, who took over in October last year, has focused on
diabetes as a key area for growth, hoping to tap into rising
demand for medicines to deal with an epidemic of the disease,
which is closely tied to obesity.

Buying the Bristol stake in the venture will boost his
company's sales and profits, even as Soriot continues the
long-term quest to improve the pipeline of promising
experimental medicines.

"Even with a staged earn-out which could rise to $1.6
billion, the price would appear to be good business particularly
as it also includes full rights to Onglyza and dapagliflozin."

For Bristol, the deal means it will become an even more
focused specialist drugmaker.

In a separate announcement, Bristol said it would raise its
quarterly dividend by about 3 percent starting in the first
quarter of next year, resulting in an indicative full-year
payout of $1.44 per share. The share price closed on Wednesday
at $52.59.

The U.S.-based company, which will continue to receive
royalty payments from the diabetes unit through to 2025,
forecast that earnings per share in 2014 would be between $1.65
and $1.80, broadly in line with the $1.70 to $1.78 it is
forecasting for this year.

Bernstein analyst Tim Anderson said in a research note that
a price of $4 billion would imply a multiple of 4.8 times sales
for the half of the joint venture that AstraZeneca does not
already own.

AstraZeneca said the acquisition, which it will finance from
existing cash resources and short-term credit facilities, would
be neutral to its core earnings in 2014.

A worse than expected performance by Bydureon, one of the
diabetes treatments, prompted AstraZeneca to also say that it
would incur a non-core impairment charge of around $1.7 billion.

The Bristol-AstraZeneca diabetes joint venture includes the
oral medicines Onglyza, Kombiglyze and Forxiga, as well as the
injectable treatments Bydureon and Byetta. Last week the venture
received a boost when an advisory panel to the U.S. Food and
Drug Administration endorsed its new diabetes pill
dapagliflozin.
(Editing by Greg Mahlich)